When investing in a startup, you don’t finance a great idea; you invest in the entrepreneurs, the founders.

There are countless great ideas in the market, but not everyone, nor every team, can pull a company together and head it for success. This means that as an investor, you need to carefully observe the founders, way beyond looking at their idea, market needs and financial feasibility.

The list of desired characteristics is long and no one can have it all. From my experience, here are some good starting points to
focus your attention on:

1. Everything is workable, but not everyone is coachable!

As an investor, you should always look for ways to help the startup. You have the knowledge, experience, relationships in the market and network of advisors. So, in essence, many of the identified challenges are workable. The problem is that in many cases you won’t know all the challenges. Sometimes the founders don’t fully acknowledge them, or perhaps they just don’t see the entire picture correctly. At the end of the day, everyone could benefit from support, but not all of us seek it.

And this is where the concept of “coach-ability” kicks in. As an investor, you make suggestions. Some people implement them, others ignore. Why is that?

In order to truly develop and change, we need awareness and willingness.

 

Awareness- in order to change, or ask for support, one must be aware of her/his own blind spots and areas for development. Without the self-awareness, no change will occur. As an investor, you can tell your thoughts and observations, but they will fall on deaf ears. Hence, when meeting with entrepreneurs, you must check their self-awareness levels.

This is not always easy. When answering straight forward questions, entrepreneurs may indicate certain areas for development, but are these really the core areas they are lacking? Are these all their development needs? What are their blind spots? What do they know and tell about themselves? What do they know and don’t say? What don’t they know about themselves? What is their general attitude? You must ensure you know these answers before investing.

Willingness- Awareness is a great start, but is not enough. We are all aware of areas we could benefit from developing, however, must be willing to focus our energy on changing, going out of our comfort zone and trying new behaviours, different ways of thinking and working.

As an investor, you need to ensure that the entrepreneurs you are about to invest in are aware and are truly willing to learn and change on their way to success. This is especially important when investing in first-time founders, CEOs and CTOs.

Support- The support investors provide is far beyond knowledge. Ongoing coaching, mentoring, suggestions, ideas- all are important and will work well, provided that the entrepreneurs are coachable – aware and willing. It is not a one-off advice that will provide for success, but an ongoing feedback, as the entrepreneurs are in a process of trial and error, learning new skills.

2. Business maturity is not a matter of age

Many entrepreneurs are young and in some degree still naive. This is often playing for their success. Where maturity really matters is when it meets business understanding and commercialism. I refer to business maturity as a concept that includes the ability to know what they don’t know. The more intelligent people are, the more they are aware of the limitation of their own knowledge. Maturity is part of this as well.

Do they know what they don’t know? Do they see the entire commercial picture? If not- are they aware of the areas that they are lacking? What did they learn from previous failures? Those that are not mature enough will tend to blame external sources for the failure; mature people will be able to analyse what they have done wrong and what they should have done differently. They will be able to tell you how they are going to implement their learnings in the future. Honesty plays a part here as well.

Ability to focus, create a vision, inspire others and other traits are very important, but without sufficient business maturity- it will be very hard to run a successful startup.

3. It’s all about the team

Teams, teams, teams… everyone writes about the importance of the founders’ team. I agree, and also believe that the team approach is beyond that of the small founders. If the founders are friends and seem like a great team, but don’t have an inclusive team approach, how are they going to attract, manage and retain others?

It is also very important that the founders have complementary skills. Again, the concept of complementary skills goes way beyond the founders’ team. Especially when the team is small, each new employee is filling a skills gap and hence potentially brings a diversity of thought to the startup. How inclusive are the entrepreneurs? How accepting are they of different views? What is their communication style? Can they work well together? Can they work well with and lead others?

4. The spark in the eyes must be complemented with resilience and grit

Yes, without the spark in the eyes, the passion, creativity and energy, the startup can’t be built. But the spark is not enough. Building a startup is living in a roller coaster. There will be ups and downs, many small “failures” or regressions that have the potential to switch off the light. Entrepreneurs must be resilient. They need to be able to cope with numerous challenges and hurdles and have the gift, the courage to do it no matter what. Make mistakes, be rejected, fall, get up and move on stronger and wiser. Not everyone with passion is strong enough to go through it.

It is easy to identify the spark; a bit more difficult (but certainly doable) to assess resilience and grit.

 All these traits can and should be assessed as part of the due diligence VCs and Investors do prior to making investment decisions.

As I tell my clients, “at the end of the day, great ideas are built by people. Don’t forget the people element when looking for your next investment!”